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Industry Platforms and Ecosystem Innovation

Annabelle Gawer

Imperial College Business School

Imperial College London

South Kensington Campus

London, SW7 2AZ, UK

T: +44 (0) 207 594 9174

F: + 44 (0) 207 594 9189

E-mail: a.gawer@imperial.ac.uk

Michael A. Cusumano

MIT Sloan School of Management

100 Main Street, E62-438

Cambridge, MA 02142-1347, USA

T: + 1 (617) 253 2574

F: + 1 (617) 253 2660

Email: cusumano@mit.edu

December 16, 2012

Paper forthcoming in the Journal of Product Innovation Management

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Biographical Sketch of Annabelle Gawer

Annabelle Gawer is Assistant Professor in Strategy and Innovation at the Imperial

College Business School in London. She teaches courses on strategic management and high-

tech strategy to full-time MBAs, executive MBAs, and in executive education programmes.

An internationally recognized thought leader and highly-cited researcher in high-tech strategy,

she is a pioneering contributor to the field of research on technological platforms. She has

published two books and a number of articles in this research area. Her first book, Platform

Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation (Harvard Business

School Press, 2002), co-authored with MIT Prof. M Cusumano, has become a reference in

business and academia. Her latest book, Platforms, Markets and Innovation (Edward Elgar,

2009), is an edited volume dedicated to the growing field of platform research. Her research

articles have been published in the Journal of Economics and Management Strategy, the MIT

Sloan Management Review, the European Management Review, Research in the Sociology of

Organizations, and Communications and Strategies. Her work has also been published in the

Wall Street Journal and the European Business Review. Her books and articles have been

translated in Japanese and Chinese. She is frequently invited to give keynote speeches at

academic conferences as well as high-tech industry events. She has consulted for a number of

international corporations, and is a member of the steering committee on the future of e-Skills

for Europe for the European Commission. Annabelle received a Diplôme d‘Ingénieur Civil

des Mines from Ecole des Mines de Nancy (France), a Master of Science in Applied

Mathematics from Université Paris 6 (France), a Master of Science in Industrial Engineering

from Stanford University, and a Ph.D. in Management from MIT Sloan.

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Biographical Sketch of Michael A. Cusumano

Michael A. Cusumano is the Sloan Management Review Distinguished Professor of

Management at the Massachusetts Institute of Technology's Sloan School of Management, with

a joint appointment in the MIT Engineering Systems Division. He specializes in strategy,

product development, and entrepreneurship in the computer software business as well as

Internet services, consumer electronics, and automobiles. He currently teaches courses on The

Software Business and Digital Platforms as well as Advanced Strategic Management. Prof.

Cusumano received an A.B. degree from Princeton University and a Ph.D. from Harvard

University and completed a postdoctoral fellowship in Production and Operations Management

at the Harvard Business School before joining MIT in 1986. He received two Fulbright

Fellowships and a Japan Foundation Fellowship for studying at Tokyo University. He has

consulted for more than 90 companies around the world as well as been a director of several

public and private companies. He is a former editor-in-chief and chairman of the MIT Sloan

Management Review and was named one of the most influential people in technology and IT by

Silicon.com in 2009. He is the author or co-author of 9 books on technology strategy and

management, including Staying Power (2010), The Business of Software (2004), Platform

Leadership (2002), Competing on Internet Time (1998), and Microsoft Secrets (1995).

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Introduction

This article brings together some of the recent literature on ―industry platforms‖ and

shows how it relates to managing innovation within and outside the firm as well to dealing

with technological and market disruptions and change over time. First, we define the term

―platform‖ and why this concept seems to have become increasingly important for researchers

and managers. Second, we clarify differences in the literature with regard to how to define

different types of platforms and associated economic, managerial, and strategic concepts.

Third, we review the case of Intel and other examples to illustrate the range of technological,

strategic, and business challenges that platform leaders and their competitors face as markets

and technologies evolve. Finally, we identify practices associated with effective platform

leadership and avenues for future research to deepen our understanding of this important

phenomenon and what firms can do to manage platform-related competition and innovation.

Platform Definitions and Distinctions

What managers and researchers refer to as platforms exist in a variety of industries,

especially in high-tech businesses driven by information technology. Microsoft, Apple,

Google, Intel, Cisco, ARM, Qualcomm, EMC, and many other firms, small and large, build

hardware and software products for computers, cell phones, and consumer electronics devices

that in one form or another serve as what we can call industry platforms. These firms and their

hundreds if not thousands of partners also participate in platform-based ―ecosystem‖

innovation (Moore, 1996; Iansiti and Levien, 2004). Platforms are distinct in that they are

often associated with ―network effects‖: that is, the more users who adopt the platform, the

more valuable the platform becomes to the owner and to the users because of growing access

to the network of users and often to a growing set of complementary innovations. In other

words, there are increasing incentives for more firms and users to adopt a platform and join

the ecosystem as more users and complementors join.1

Industry platforms and associated innovations, as well as platforms on top of or

embedded within other platforms have become increasingly pervasive in our everyday lives

(for example, microprocessors embedded within personal computers or smart phones that

access the Internet, on top of which search engines such as Google and social media networks

1 We use the term ―complementor‖ in the sense defined by Brandenburger and Nalebuff (1996), as a short-hand

for ―the developer of a complementary product‖ where two products are complements if greater sales of one

increase demand for the other. Formally, A and B are complements if the valuation by consumers of A and B

together is greater than the sum of the valuation of A alone and of B alone. Va+b = (1 + δ) (Va + Vb), δ > 0.

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such as Facebook exist, and on top of which applications operate, etc.). Not surprisingly,

several distinct academic literatures have studied this phenomenon. The term platform has

become nearly ubiquitous, appearing in the new product development and operations

management field (Meyer and Lehnerd, 1997; Simpson et al., 2005); in technology strategy

(Gawer and Cusumano, 2002 and 2008, Eisenmann, Parker and Van Alstyne, 2006); and in

industrial economics (Rochet and Tirole, 2003; Evans, 2003; Armstrong, 2006). Our analysis

of a wide range of industry examples, however, suggests there are two predominant forms of

platforms: internal or company-specific platforms, and external or industry-wide platforms.

In this paper, we define internal (company or product) platforms as a set of assets

organized in a common structure from which a company can efficiently develop and produce

a stream of derivative products (Meyer and Lehnerd, 1997; Muffato and Roveda, 2002). We

define external (industry) platforms as products, services or technologies that are similar in

some ways to the former but provide the foundation upon which outside firms (organized as a

‗business ecosystem‘) can develop their own complementary products, technologies, or

services (Gawer and Cusumano, 2002; Gawer, 2009a). These are somewhat high-level

definitions, however, and it is instructive to see how researchers have treated the distinctions

between these two types of platforms at a more detailed level.

Research on Internal and External Platforms2

Internal Platforms

The first popular usage of the term platform seems to have been in the context of new

product development and incremental innovation around reusable components or technologies.

We refer to these as internal platforms in that a firm, either working by itself or with suppliers,

can build a family of related products or sets of new features by deploying these components.

In many ways, this is an old idea: Brown (1995) indicated in his history of Baldwin

Locomotive Works that as early as 1854, the US locomotive manufacturer developed a

―rigorous program to standardize locomotive parts. Now standard components could be used

across a number of Baldwin-standard engines or even in custom designs‖ (Brown 1995: 21).

Product designers and engineers more broadly are generally trained to systematically reuse

patterns and design rules from previous work and improve upon prior art and the work of

others (Norman, 1988; Baldwin and Clark, 1999; Le Masson, Weil, and Hatchuel, 2011).

2 This section follows Gawer (2009a) [―Platform Dynamics and Strategies: from Products to Services‖].

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Creating a reusable foundation for product development within the firm requires

specific planning and management. For example, Wheelwright and Clark (1992) describe how

various companies have developed ―product platforms‖ to meet the needs of different

customers simply by modifying, adding, or subtracting different features. McGrath (1995),

Meyer and Lehnerd (1997), Cusumano and Nobeoka (1998), Krishman and Gupta (2001), and

Muffatto and Roveda, (2002) all have done research in a similar vein. They have defined

these kinds of platforms as subsystems and interfaces that form a common structure from

which a company can efficiently develop and produce a family of products, such as new

automobiles or consumer electronics devices. Robertson and Ulrich (1998) propose an even

broader definition, viewing platforms as the collection of assets (i.e., components, processes,

knowledge, people and relationships) that a set of products share. In the marketing literature,

Sawhney (1998) even suggests that managers should move from ―portfolio thinking‖ to

―platform thinking,‖ which he defines as understanding the common strands that tie the

firm‘s offerings, markets, and processes together, and exploit these commonalities to create

leveraged growth and variety.

These researchers have identified, with a large degree of consensus, several potential

benefits of internal platforms: savings in fixed costs; efficiency gains in product development

through the reuse of common parts and ―modular‖ designs, in particular, the ability to produce

a large number of derivative products with limited resources; and flexibility in product feature

design. One key objective of platform-based new product development seems to be the ability

to increase product variety and meet diverse customer requirements, business needs, and

technical advancements while maintaining economies of scale and scope within

manufacturing processes – an approach also associated with ―mass customisation‖ (Pine,

1993).

The empirical evidence indicates that, in practice, companies have successfully used

product platforms to increase product variety, control high production and inventory costs,

and reduce time to market. Most of the early research is about durable goods, whose

production processes involve manufacturing, such as in the automotive, aircraft, equipment

manufacturing, and consumer electronics sectors. Companies frequently associated with

module-based product development and families of products derived from common internal

platforms include Sony, Hewlett-Packard, NDC (Nippon Denso), Boeing, Honda, Rolls

Royce, and Black & Decker (Lehnerd, 1987; Rothwell and Gardiner, 1990; Whitney, 1993;

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Sabbagh, 1996; Sanderson and Uzumeri, 1997; Feitzinger and Lee, 1997; Cusumano and

Nobeoka, 1998; Reichtin and Kranz, 2003; Simpson et al., 2005).

Researchers have also identified a few fundamental design principles or ‗design rules‘

that appear to operate in internal product platforms, in particular the stability of the system

architecture, and the systematic or planned reuse of modular components (Baldwin and Clark,

2000; Baldwin and Woodward, 2009). We can see as well a fundamental trade-off couched in

terms of functionality and performance: the optimization of any particular subsystem may

result in the sub-optimization of the overall system (Meyer and Lehnerd, 1997). In this sense,

internal platforms may promote only incremental innovation or constrain some types of

innovation – a theme that we will return to later in this article.

We should also mention the concept of a ―supply-chain platform,‖ although we see

this as a special case of internal platform. Here, a set of firms follow specific guidelines to

supply intermediate products or components to the platform owner or the final product

assembler. The objective of supply-chain platforms is also to improve efficiency and reduce

cost such as by the systematic reuse of modular components. Major potential benefits are that

a firm with access to a platform supply chain can tap into external capabilities to find more

innovative or less expensive components and technologies. At the same time, the firm may

have less control over the components and technology, which can have its own negative

consequences. Supply-chain platforms are common in assembly industries, such as consumer

electronics, computers, and automobiles (Tierney et al., 2000; Bremner et al., 2004; Szczesny,

2003; Sako, 2003, 2009; Zirpoli and Becker, 2008; Zirpoli and Caputo, 2002; Brusoni, 2005;

Brusoni and Prencipe, 2006). We can also link this literature to other research on sharing

modules across firms (Staudenmayer, Tripsas and Tucci, 2005), limits of modularity as a

design strategy (Brusoni and Prencipe, 2001), and industry architecture or structure (Jacobides,

Knudsen and Augier, 2006; Pisano and Teece, 2007). The research, though, suggests that a

key distinction between supply chains and industry platforms is that, in the case of industry

platforms, the firms developing the complementary innovations – such as applications for

Windows or the Apple App Store – do not necessarily buy from or sell to each other. Nor are

they usually part of the same supply chain or share patterns of cross-ownership, such as

Toyota does with its major component suppliers.

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External Platforms

We have defined external or industry platforms, the main subject of this paper, as

products, services or technologies developed by one or more firms, and which serve as

foundations upon which a larger number of firms can build further complementary

innovations and potentially generate network effects. There is a similarity to internal

platforms in that industry platforms provide a foundation of reusable common components or

technologies, but they differ in that this foundation is ―open‖ to outside firms. The degree of

openness can also vary on a number of dimensions – such as level of access to information on

interfaces to link to the platform or utilize its capabilities, the type of rules governing use of

the platform, or cost of access (as in patent or licensing fees) (see, for example, Anvaari and

Jansen, 2010).

There are some similarities between the concept of industry platform and that of a

dominant design. A ―dominant design‖ (Abernathy and Utterback, 1978; Utterback, 1994),

when it emerges, sets the standard for what form and features users expect a particular

product to take in the future. Early research on dominant designs highlighted that once a

dominant design emerges, it shifts the focus of competition from design to manufacturing,

and the focus of innovation from product innovation to process innovation. It also suggested

that the product life cycle dynamics that lead to a dominant design is a long process of

problem solving characterized by a logic that progressively leads an industry to standardize

core components. Recent theoretical developments on dominant designs (Murmann and

Frenken, 2006), recognizing that earlier research had been imprecise on products‘

architectural hierarchies, have proposed a systematic hierarchical model of dominant designs.

This line of research articulates a model of dominant designs as a nested hierarchy of

technology cycles, and makes a distinction between ―core‖ and ―peripheral‖ subsystems and

components, where the stabilization of one level of the hierarchy allows for more innovation

at peripheral levels.

The two concepts differ, however, in that while the concept of dominant design rests

on industry-level evolutionary mechanisms with no particular agency, industry platforms are

―manageable objects‖ that organizations purposefully manage to bring multiple parties within

the industry together – primarily users and complementors.3 Industry platforms, like internal

company platforms, do not simply emerge without deliberate, firm-driven agency or

3 We thank one of our anonymous reviewers for this insight,

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deliberate managerial decisions and actions. And in platform markets – those industries

characterized by a foundation technology around which third-party firms create

complementary innovations, with adoption driven by positive feedback loops and network

effects – the most likely winner is not necessarily the originator of the dominant design or the

owner of the most elegant product. The most likely winner is the owner of the ―best‖ platform,

the characteristics of which we discuss later in this section.

Despite different degrees of openness to outside complementors, various products and

technologies have served as industry platforms: the Microsoft Windows and Linux operating

systems; Intel and ARM microprocessors; Apple‘s iPod, iPhone, and iPad designs along with

the iOS operating system; Apple‘s iTunes and App Store; Google‘s Internet search engine and

Android operating system for smart phones; social networking sites such as Facebook,

LinkedIn, and Twitter; video-game consoles; and the Internet itself. We can even view

payment technologies, ranging from credit and debit cards to micropayment schemes, as

platforms that enable different types of financial transactions (Leblebici 2012).

Early research on industry platforms and their innovation ecosystems generally focused

on computing, telecommunications, and other information-technology intensive industries.

For example, Bresnahan and Greenstein (1999), in their study of the computer industry,

analyzed platforms as a bundle of standard components around which buyers and sellers

coordinated their efforts. West (2003) defined a computer platform as an architecture of

related standards that allowed modular substitution of complementary assets such as software

and peripheral hardware. Iansiti and Levin (2004) called a ―keystone firm‖ (similar to what

Gawer and Cusumano (2002) referred to as a platform leader) a firm that drives industrywide

innovation for an evolving system of separately developed components. Gawer and

Henderson (2007) described a product as a platform when it is one component or subsystem

of an evolving technological system, when it is strongly functionally interdependent with

most of the other components of this system, and when end-user demand is for the overall

system, so that there is no demand for components when they are isolated from the overall

system.

Taken together, these studies suggest several generalizations with regard to what makes

for the best industry platform and how this can affect competitive dynamics as well as

innovation at the ecosystem level. Positions of industrial leadership are often contested and

lost when industry platforms emerge, as the balance of power between assemblers and

component-makers changes. At the same time, industry platforms tend to facilitate and

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increase the degree of innovation on complementary products and services. The more

innovation there is on complements, the more value it creates for the platform and its users via

network effects, creating a cumulative advantage for existing platforms: As they grow in

adoption, they become harder to dislodge by rivals or new entrants, with the growing number

of complements acting like a barrier to entry. The rise of industry platforms may also raise

complex social welfare questions regarding tradeoffs between the social benefits of platform-

compatible innovation versus the potentially negative effects of preventing competition on

overall systems.

It follows that the design principles or ―design rules‖ for industry platforms overlap

somewhat with those for internal and supply-chain platforms, but go beyond them to serve a

larger purpose. For example, the stability of the platform architecture is still essential, but

there are important differences. In contrast to what happens for internal and supply-chain

platforms, the logic of design for industry platforms is inverted. Instead of a firm being a

―master designer‖ or assembler, here we start with a core component that is part of an

encompassing modular structure, and the final result of the assembly is either unknown ex

ante or incomplete. In fact, for truly successful industry platforms, the end-use of the end-

product or service does not seem to be fully pre-determined by the platform owner. This

creates unprecedented scope for innovation on complementary products, services and

technologies. The situation simultaneously evokes the fundamental question of how

incentives (for third-parties) to innovate can be embedded in the design and governance of the

platform.

This leads to another apparent design rule for effective industry platforms: The

interfaces around the platform should be sufficiently ―open‖ to allow outside firms to ―plug

in‖ complements as well as innovate on these complements and make money from their

investments. This resonates well with research by Chesbrough (2003) and others (von Hippel,

2005) on open innovation. However, recent research on platforms highlights the complex

trade-offs between ―open‖ and ―closed‖ (Eisenmann, Parker and Van Alstyne, 2009;

Greenstein, 2009; Schilling, 2009; Gawer and Cusumano, 2008). These researchers suggest

that, while opening up interfaces should increase complementors‘ incentives to innovate, it is

important to preserve as proprietary some source of revenue and profit. It therefore adds a

more subtle take on the literature on open innovation that had extolled the simple benefits of

opening interfaces.

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Specific strategic questions also arise in the context of industry platforms. For example,

Gawer and Cusumano (2008) argue that not all products, services or technologies can become

industry platforms. To perform this industry-wide role and convince other firms to adopt the

platform as their own, the platform must (1) perform a function that is essential to a broader

technological system, and (2) solve a business problem for many firms and users in the

industry. While necessary, these conditions alone are still not sufficient to help firms

transform their products, technologies or services into industry platforms, nor indicate how

platform leaders can stimulate complementary innovations by other firms, including some

competitors, while simultaneously taking advantage of owning the platform.

One particular challenge for innovation dynamics is that platform leaders and

competitors must navigate a complex strategic landscape where both competition and

collaboration occur, sometimes among the same actors. For example, as a technology evolves,

platform owners often face the opportunity to extend the scope of their platform and integrate

into complementary markets. This creates disincentives for complementors to invest in

innovation in these complementary markets. Farrell and Katz (2000) identified the difficulty

for platform owners to commit not to squeeze the profit margins of their complementors.

Gawer and Henderson (2007) show how Intel‘s careful selection of which complementary

markets to enter (the connectors) while giving away corresponding intellectual property

allowed the firm to push forward the platform/applications interface. Intel thereby retained

control of the architecture at the same time it renewed incentives for complementors to

innovate ―on top of‖ the newly extended platform.

Another challenge is that, as technology is constantly evolving, platform leaders need to

make business decisions and technology or design decisions in a coherent manner. For

example, consider a firm that designs open interfaces to its platform: this will stimulate

innovation on complements, and the firms that will act as complementors by designing these

complements need therefore to be treated by the focal firms as allies, not potential competitors.

This will mean that the focal firm should probably refrain from entering as a competitor in

complementors‘ markets if it wishes to sustain the complementors‘ incentives to innovate.

This need for coherence across business decisions and technological design decision can be

difficult to achieve since these decisions are often made by different teams within the

organization. The coherence imperative requires top management‘s awareness of the

interdependencies between these decisions, and the right internal process in place to allow

ongoing coordination across functional silos. Hence, to make the whole greater than the sum

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of the parts, we can see the need in many complex systems industries for one firm or a small

group of firms to act as a ―platform leader‖ (Gawer and Cusumano, 2002).

Network Effects and Multi-Sided Markets

Perhaps the most critical distinguishing feature of an industry platform compared to an

internal company platform or supply chain is the potential creation of network effects. As

mentioned earlier, these are positive feedback loops that can grow at exponentially increasing

rates as adoption of the platform and the number of complements rise. The network effects

can be very powerful, especially when they are ―direct‖ (sometimes called ―same-side‖)

between the platform and the user of the complementary innovation, such as how Facebook

attracts users, friends of users, and friends of friends of users. In some cases these network

effects are also reinforced by a technical standard that makes using multiple platforms

(―multi-homing‖) or switching from one platform to another difficult or costly. For example,

some Windows applications require other users to have the same application. Or Facebook

users can only view profiles of friends and family within their groups. The network effects

can also be ―indirect‖ or ―cross-side,‖ and sometimes these are equally or even more powerful.

Indirect effects occur when, for example, advertisers become attracted to the Google search

engine or to Facebook because of the large number of users. Companies can also innovate in

business models and find ways of charging different sides of the market to make money from

their platform or from complements and different kinds of transactions or advertising

(Eisenmann, Parker and Van Alstyne, 2006). There may be some limits to network effects,

however. For example, in a study of ecosystems for mobile computing and communications

platforms, Boudreau (2012) has found that the positive feedback loop to the number of

complementors does not perpetuate itself ad infinitum. Too many complementors at some

point may discourage additional firms from making the investment to join the ecosystem.

In parallel with the strategy literature, some researchers in industrial organization

economics have begun using the term platform to denote markets with two or more sides, and

potentially with network effects that cross different sides. Such a ―multi-sided market‖

provides goods or services to several distinct groups of customers, all of whom need each

other in some way and rely on the platform to mediate their transactions (Evans, 2003; Rochet

and Tirole, 2003 and 2006). While the concept of a multi-sided market can sometimes apply

to supply-chain platforms as well as industry platforms, it does not entirely conform to either

category. Nonetheless, there are important similarities between industry platforms and multi-

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sided markets. Among the similarities are the existence of indirect network effects that arise

between two different sides of a market when customer groups must be affiliated with the

platform in order to be able to interact or transact with one another (Armstrong, 2006;

Caillaud and Jullien, 2003; Evans, 2003, Hagiu, 2006; Rochet and Tirole, 2003 and 2006).

At the same time, not all multi-sided markets are industry platforms as we describe

them in this paper. Double-sided markets where the role of the platform is purely to facilitate

exchange or trade, without the possibility for other players to innovate on complementary

markets, seem to belong to the supply-chain category. A multi-sided market that stimulates

external innovation could be regarded as an industry platform. However, while all industry

platforms function in this way, not all multi-sided markets do. For example, dating bars and

web sites, a common example used in the literature, are double-sided markets in that they

facilitate transactions between two distinct groups of customers, although there need not be a

market for complementary innovations facilitated by the existence of the platform.

The emerging literature on double-sided markets (Rochet and Tirole, 2003 and 2006;

Armstrong, 2006; Caillaud and Jullien, 2003; Evans, 2003) is particularly useful to

understand the ―chicken-and-egg problem‖ of how to encourage access to a platform for

distinct groups of buyers or sellers. Nonetheless, the literature has limitations as platform

research. For example, it takes for granted the existence of the markets that transact through

the platform. With the notable exceptions of Parker and Van Alstyne (2005) and Hagiu

(2007a and 2007b), this literature has delivered only limited insight into why such platforms

come into existence in the first place: the drivers of platform emergence and evolution. Most

research focuses on pricing as the key to encouraging access and adoption. In a welcome

development, however, Evans (2009) focuses on start-up platform strategies, while Hagiu

(2007b), Eisenmann et al. (2009), and Boudreau and Hagiu (2009) focus on the importance of

non-price mechanisms for the governance of platform ecosystems. They suggest, in

accordance with Gawer and Cusumano (2002), that pricing alone cannot be the answer to the

inevitable strategic questions of platform dynamics, such as how to share risks among

members of an ecosystem. These papers take double-sided (or multi-sided) research to the

next level and bridge the strategy and product design literature as well as the industrial

organization economics literature.

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Platform Leadership and the Case of Intel

We have learned from industry case studies that platform leaders can occupy both an

enviable and problematic strategic situation: They are central players in an ecosystem but

may be highly dependent on innovations and investments from other firms. Far from

remaining passively impacted by the decisions of others, however, the evidence suggests that

platform leaders have a variety of strategic alternatives to influence the direction of

innovation in complementary products and services by third parties. In our view, therefore,

platform leaders are organizations that successfully establish their product, service, or

technology as an industry platform and rise to a position where they can influence the

trajectory of the overall technological and business system of which the platform is a core

element. When done properly, these firms can also derive an architectural advantage from

their relatively central positions.

At the same time, platform leaders generally want to maintain or increase competition

among complementors, thereby maintaining their bargaining power over these partner firms.

Platform leadership is therefore always accompanied by some degree of architectural control

(Schilling, 2009) as well as interdependence. Again, the momentum created by the network

effects between the platform and its complementary products or services can often erect a

barrier to entry for potential platform competitors.

It follows that, in contrast to internal product platforms, establishing an industry platform

requires more than technical efforts and astute decisions about design and architecture. The

industry-wide goal is to facilitate complementary innovations by third-party firms. Platform

leaders must also strive to establish a set of business relationships that are mutually beneficial

for ecosystem participants and be able to articulate a set of mutually enhancing business

models.4

For example, Gawer and Cusumano (2002, 2004, 2008) have studied several examples of

industry platforms and the behaviour of leading companies in those markets. In particular,

based on their analysis of Intel, with comparisons to Microsoft, Cisco, Palm, and NTT

DoCoMo, they developed a specific concept of ―platform leadership,‖ along with associated

strategic activities and practices. Their 2002 study in particular describes the key actions Intel

took to rise from a simple component maker to supplier within a system architecture that it

4 While platform leaders will often claim that establishing trust between themselves and complementors is

essential to their success, recent research (Perrons, 2009) explores in detail the issue of trust in platform

leadership and attempts to separate empirically whether the alignment platform leaders obtain from

complementors is due to coercion or due to trust.

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had not designed, and then to transform itself into a major source of influence over the

evolution of the personal computer.5

Beginning in the early 1980s, Intel (founded in 1968) has contributed an essential

hardware component, the microprocessor, to personal computers originally designed by IBM

in 1981. Meanwhile, Microsoft (founded in 1975) has contributed an essential software

component, the operating system, as well as some key applications products such as Office.

The PC market grew rapidly during the 1980s and industry leadership shifted from Apple

(founded in 1976), which introduced the successful Apple II in 1977, to IBM, and then to

Intel and Microsoft. Intel executives in the early 1990s, however, became convinced it would

be increasingly difficult to continue growing PC demand for at least two reasons: First was a

nearly obsolete PC architecture, which made it difficult to handle new graphical applications

or communications functions (remote database access as well as fax and telephony, video

conferencing, etc.). Second was the lack of technical leadership to advance the PC ―system‖ –

basic hardware and software as well as new applications and connections to peripherals such

as printers, cameras, fax machines, scanners, and the like.

In other words, Intel entered the market merely as a component supplier to IBM. Fairly

quickly, though, the aging IBM-compatible PC became a problem in that the system

architecture and limited software prevented Intel chips from reaching their maximum

performance levels. This was especially clear when compared to the Macintosh computer

(introduced in 1984) and high-performance work stations using RISC (reduced instruction-set

computing) architectures. The problem was serious for Intel because what had become its

primary business – designing and manufacturing microprocessors for personal computers —

was an enormous growth opportunity that required billions of dollars in investment for each

microprocessor generation. Yet the systemic nature of the PC meant that the success of the

platform involved many actors that Intel did not control. Dozens if not hundreds of

companies (in particular, all the suppliers for this architecture) had a stake in the IBM-

compatible PC design. Yet no single supplier of software or other components (chip sets,

screens, keyboards, printers, the operating system, or applications) could evolve the overall

system by itself, let alone change it significantly.

Therefore, the first challenge Intel faced was that the architecture of the system was less

advanced and much more difficult to use than competing computer systems such as the

5 The following section follows Gawer and Cusumano (2002) [Platform Leadership: How Intel, Microsoft and

Cisco drive industry innovation], Chapter 2: Intel‘s rise to platform leadership.

16

Macintosh. The second was that no one seemed capable of moving the platform technology

forward in a way that was satisfactory for users or for Intel. Intel executives, led by co-

founder and chairman Gordon Moore, and CEO Andy Grove, were also thinking ahead to the

trajectory of innovation in which they were planning to invest. They intended to develop a

stream of more powerful microprocessors frequently and regularly in subsequent years. (This

investment pattern, where microprocessor power increases on a predictable basis while prices

fall, came to be known as ―Moore‘s Law.‖) A solution to the problem of the PC architecture,

from Intel‘s perspective, had to accommodate management‘s future vision for the company.

In 1991, Intel executives established a laboratory to address these fundamental technical

and strategic challenges. This group would be called the Intel Architecture Lab – or IAL.

Grove initiated the creation of IAL by asking Dr. Craig Kinnie, who had had already been

involved in previous system-design effort within Intel, to tackle this issue that the PC

platform was not moving ahead as fast as Intel would like. Kinnie went on to head the IAL

for the next ten years and came to champion IAL‘s vision – both inside and outside Intel.

Grove wanted the Intel Architecture Lab to become the ―architect of the open computer

industry.‖6 Kinnie recalled how ―Dr. Grove concluded that … we needed to provide

leadership to the industry to cause the platform to evolve more quickly, to get new

applications and new uses for the platform… Andy Grove essentially asked me — his specific

words — to become the architect for the open computer industry, to help the industry figure

out how to evolve the platform. A narrow view of that would be to pretend that I was in a

large company like IBM and that all these other companies worked for me and my boss, and

that we could work together.‖7

During the mid-1990s, IAL‘s mission evolved so that IAL became ―a catalyst for

innovation in the industry.‖8 More specifically, IAL became proactive in helping Intel with

what company people called ―Job 1‖ – selling more microprocessors, the main source of

Intel‘s revenue and profit. By driving or ―orchestrating‖ innovation activities at other firms

that complemented Intel microprocessors, IAL engineers tried to create new uses for

computing devices and thus help generate demand for new computers – most of which would

6 Author interview with Dr. Craig Kinnie, Director, Intel Architecture Lab, Intel Corporation, Hillsboro, Oregon,

USA, 11 November 1997. 7 Author interview with Dr. Craig Kinnie, op. cit.

8 Author interview with Dave Johnson, Director of the Media and Interconnect Technology Lab, Intel

Architecture Lab, Intel Corporation, Hillsboro, Oregon, USA, 20 August 1998.

17

probably use Intel microprocessors.9 By 1997, IAL‘s mission had become even broader: ―to

establish the technologies, standards and products necessary to grow demand for the extended

PC through the creation of new computing experiences.‖10

Accordingly, IAL became actively

involved in driving architectural progress on the PC system, but also in stimulating and

facilitating innovation on complementary products, and finally coordinating many firms‘

innovative work in the industry, attempting to push forward the development of new system

capabilities. Table 1 is a list of representative IAL activities during 1997-1998 aimed at

orchestrating industry-level innovation as well as developing open system interfaces to

stimulate complementary products and services from third parties. Table A in the Appendix

provides further details on the industry initiatives aimed at coordinating industry innovation.

Table 1: A list of Intel’s platform leadership activities (1997-1998)

Projects Type of Project Did Intel share

Intellectual

Property for

low royalties?

Did Intel engage

in cross-industry

coordination, or

in other forms of

facilitation of

complementors’

innovation?

1 Networked Multimedia Industry initiative N first/Y later Y

2 Manageability Industry initiative Y Y

3 Big Pipes (Broadband) Industry initiative Y Y

4 Security Industry initiative Y Y

5 Anywhere-in-the-Home Industry initiative Y Y

6 Advance-the-Platform Industry initiative Y Y

7 PCI (Peripheral Component

Interface)

System interface Y Y

8 AGP (Advanced Graphics

Port)

System interface Y Y

9 USB (Universal Serial Bus) System interface Y Y

10 1394 (also called FireWire) System interface Y Y

11 TAPI (Telephony

Application Programming

Interface)

System interface Y Y

12 H.323 (Computer telephony

interface)

System interface Y N first/Y later

13 Home Radio-Frequency System interface Y Y

14 DVD (Digital Video Disk) System interface Y Y

9 Author interview with Carol Barrett, Marketing Manager, Intel Architecture Lab, Hillsboro, Oregon, USA, 5

August 1998. Also, ―Intel Architecture Labs, Overview,‖ undated Intel internal document. 10

Intel internal document, ―Intel Architecture Lab: Overview‖ (1998).

18

15 CDSA (Security) System interface Y Y

16 Indeo (Intel Video) System interface N first/Y later N first/Y later

Source: adapted from Gawer (2000) and Gawer and Henderson (2007)

The Intel case and comparisons to other firms suggests that companies aiming to establish

their products, technologies, or services as industry platforms need to orchestrate third-party

innovation on complements in the context of a coherent set of strategic moves. Gawer and

Cusumano described these strategic options as the ―four levers‖ of platform leadership: (1)

firm scope (the decision on which, if any, complements to make in-house); (2) technology

design (degree of modularity in the platform) and intellectual property strategy (for example,

free and open access to platform interfaces or services versus not free and closed); (3) external

relations with complementors (such as initiatives to promote investments in complementary

innovations); and (4) internal organization (company structures such as IAL or processes that

minimize conflicts should they arise, such as when the platform leader makes complements

that compete directly with ecosystem partners).

We can see successful platform leaders both encouraging and constraining innovation.

Intel separated internal product or R&D groups that might have conflicting interests among

themselves or clash with third-party complementors, such as chipset and motherboard

producers. The latter relied on Intel‘s advance cooperation to make sure their products were

compatible with Intel‘s latest products. When Intel decided that these chipset and

motherboard producers were not making new versions of their products available fast enough

to help sell new versions of its microprocessors, Intel started making some of these

intermediate products itself – to stimulate the end-user market. Nonetheless, it still kept its

laboratories in a neutral position to work with ecosystem partners. This decision was crucial

to establish and maintain Intel‘s reputation as a trustworthy partner in the ecosystem, itself a

difficult task because of strong short-term incentives to take advantage of innovation

developed by less dominant complementors. (See Gawer and Henderson, 2007, and Farrell

and Katz, 2000 for a further discussion on this issue.)

Platform Leadership and the Innovator’s Dilemma

Market positions supported by a widely adopted platform, a global ecosystem of

complementors, and strong network effects should be more difficult for competitors to

dislodge than competitive advantage stemming from standalone products more subject to

19

rapid change based on technology trends, fashion, or short-term pricing. Yet even the most

powerful platform leaders may face challenges similar to the issues described by Clay

Christensen in The Innovator’s Dilemma (1997): Success ties a firm to its existing customers

as well as the technology, products, and business models associated with those customers.

This dependence can make it difficult for a firm to change and counter innovations that are

lower priced and initially less capable but on a trajectory for improvement.

A number of well-known firms have experienced this type of ―innovator‘s dilemma‖

in their product businesses, such as computer disk drives. We argue here that, although

platform leadership gives the central firms an important advantage, it does not make them

immune to this same innovator‘s dilemma. While we need more systematic research on this

topic, in some cases, it may become even more difficult for leading firms to evolve their

platforms when they have millions of customers and hundreds if not thousands of ecosystem

partners helping to sustain a platform position. As seen in the case of Intel, and in the

examples below, platform leaders first have to evolve their own internal capabilities and

approaches to technological innovation and business strategy. Equally important, they must

bring along with them an entire ecosystem of users and partners, and coordinate at least

incremental innovation on a broad scale.11

IBM versus Intel and Microsoft

Again we find it useful to return to the case of IBM, whose origins date back to the

1880s and a business based on electro-mechanical tabulating machines and time-punch

devices. This company created the first global platforms in the modern computer era,

beginning with the System 360 mainframe in the mid-1960s. Antitrust initiatives pressured

IBM to release information to independent maintenance providers, which eventually led to an

opening of the system architecture and an ecosystem of hardware ―clone‖ makers led by

Amdahl and Fujitsu as well as software product and service companies focused on IBM

customers (Grad 2002, p. 71). IBM faced more competition in the 1970s and in later years

from vendors of smaller computers, and, as we discussed earlier, lost architectural control

over its personal computer to Microsoft and Intel during the 1980s (Fisher, Mackie, and

Manke, 1983; Campbell-Kelly and Aspray, 1996). Nonetheless, IBM remained a major player

in the computer industry due to its deep expertise in data-processing solutions. It had sold

11 This section is based on Cusumano (2011) [The Platform Leader‘s Dilemma].

20

primitive electronic computers since the early 1950s and for decades before that dominated in

tabulating machines and other office equipment. In the 2000s, this deep customer knowledge

and technical capabilities helped IBM continue to dominate the diminished mainframe market

as well as move into Internet servers and do pioneering work in high-performance systems.

IBM‘s role as an industry platform leader clearly changed as enterprise computing evolved to

become a much more heterogeneous world of computer hardware and software of different

shapes and sizes.

To IBM‘s credit, by 1980, a few key executives had realized that a platform shift was

occurring and their decisions led to the introduction of the IBM PC in 1981. The operating

system and microprocessor turned out to be the two key components of the new PC platform,

and IBM had outsourced these technologies to Microsoft and Intel. Here we have a case

where supply-chain partners evolved to become the new industry platform leaders. To its

credit again, though, after absorbing billions of dollars in losses during the latter 1980s and

early 1990s, IBM reinvented a major part of its business again. Under new CEO Louis

Gerstner, hired from RJR Nabisco in 1993, it became the champion of ―open systems‖ (Linux,

Java, the Internet, ubiquitous computing, and the cloud). Gerstner and his successors also sold

off commodity hardware businesses and refocused the company around services and

middleware software products that help customers utilize different platform technologies

(Gerstner, 2002).

The insight here for both managers and researchers is the need to be aware of how

quickly platforms and markets can evolve, and how the leader of one generation can lose

control over the next, even to ecosystem partners. We can also see that, with the right

management and strategy, as well as organizational flexibility, the platform leader‘s most

critical capabilities and customer knowledge may transfer to the next generation. In this

example, IBM had decades of experience that helped personnel understand the data-

processing needs of enterprise users and other large organizations. This is where Gerstner

kept his focus, despite years of prior disagreements within IBM on what strategy and structure

the firm should adopt in the future. The market shift away from the mainframe and the loss of

control over the PC platform were both highly damaging financially to IBM, but these

changes also created the basis for a more service-oriented company and a new business model.

21

JVC and Sony

In the 1970s, video-cassette recorders (VCRs) became the highest volume consumer

electronics product as everyone with a television set became a potential customer. Although

Sony established what we can call a dominant design with an earlier product (the 1971 U-

Matic) and then won the race to produce a viable home device, the Japan Victor Corporation

(JVC) ended up as the market winner. Several Japanese firms had studied Ampex‘s

technology for broadcasters in the late 1950s, and both JVC and Sony found ways to

miniaturize and improve the technology for a broader market. They beat several rivals in

Japan, the United States, and Europe, including Toshiba, RCA, and Philips. It took 15 years

or so of experimentation and R&D before Sony introduced the Betamax in 1975 and JVC

countered with the VHS in 1976. By 1978, however, VHS had passed Betamax in sales. It

became a global platform in that JVC licensed the VHS technology widely, allowed other

companies like RCA and General Electric in the United States to influence feature

development (such as recording time), and cultivated a large set of outside firms for video

content licensing and distribution. The Sony Betamax was first to market and may have had

slightly better recording quality. It also initially had a shorter recording time, and Sony was

not very eager to make design changes in its discussions with potential partners. JVC went on

to become a multi-billion-dollar company, based mainly on the VHS platform (Rosenbloom

and Cusumano, 1987; Cusumano, Rosenbloom, and Mylonadis, 1992).

Compared to JVC, Sony had a much broader product line, deeper technical skills, and

more financial resources. After the Betamax, it also learned to cooperate better with other

firms when it came to setting digital video standards, or introducing the PlayStation platform

for video games and the Blu-ray format for DVDs. Nonetheless, although both Sony and JVC

earned billions of dollars in revenues from their VCR products, and JVC in particular rose to

global prominence based on this one major success, both firms also failed to grasp how new

software and networking technologies were changing the world of consumer electronics. JVC

diversified from audio and video equipment to computer storage products, but never evolved

to dominate another market and in 2008 merged with Japanese audio equipment producer

Kenwood. The Sony Walkman, introduced in 1979, generated large revenues after Betamax

sales faded and could have been the foundation for a new type of platform, like Apple‘s iPod

and iPhone a well as iTunes. Yet Sony chose to focus mainly on standalone hardware

products, with the exception of the PlayStation.

22

The insight here again is that platform leaders need to prepare for both technological

and business model change, in their internal product platforms and in their external platforms.

This may be especially true when they are highly focused and successful with a particular

type of technology and business. If we compare Sony and JVC with our prior example, it even

seems that IBM, a much larger firm with an even longer history, has been able to evolve

customer and technical knowledge as well as its business models more flexibly and creatively.

For example, JVC probably would have performed better after the VCR era had it evolved its

skills more quickly from analogue to digital technology, and to networked systems and

hardware driven by software rather than software driven by hardware. Sony faced the same

challenges and did better with its greater resources but still has had major difficulties

competing with leading firms around the world, such as Apple or even Samsung. Though it

still makes Walkman multimedia devices as well as PCs, smart phones, and video game

consoles, and owns its own music label and movie studio, Sony continues to look for hit

hardware products and always seems to find itself trailing in more complex, multi-sided

platform markets (Tabuchi, 2012).

Google and Nokia

Google‘s platform was initially an Internet search engine that became nearly

ubiquitous on PC desktops with the downloadable and free toolbar. The company then built

an Internet portal, replete with email, maps, applications, storage, and other features, to

surround and feed user traffic to the search engine. Google monetizes its leadership position

by selling targeted ads that accompany searches, but Google has not stopped there. The

company realized years ago that most computing would one day be on mobile devices.

Google bought and then refined the Android operating system (which is based on Linux) and

created the Chrome browser and operating system to facilitate mobile computing as well as

mobile searches and advertising (Levy, 2011). Perhaps most important is that Google in 2012

became the largest smartphone OS provider with Android. Not even Google, however, has

done everything right. It was slow to see the importance of social networking and has been

trying for years (with limited success) to create a coalition of partners to gain access to more

social networking and social media content – again, presumably, to sell more search and

advertising. It has not built much following for its Chrome-based ―netbook‖ computers. Its

2011 acquisition of Motorola Mobility may also create tensions with Google‘s hardware

partners for Android phones, such as Samsung and HTC.

23

Another platform leader that probably has lost the most revenue and market value due

to the transition to smartphones is Nokia. The Finland-based company in 2012 remained the

largest producer of cell phones; its Symbian operating system was for years the dominant

software platform for basic handsets. From 2009-2010, however, mobile sales quickly moved

to smartphones that required more sophisticated software. Not surprisingly, during this period

and afterwards, Nokia saw its market share, market value, and financial performance suffer

dramatically as Apple‘s iPhone handsets, and a variety of devices from different companies

running Google‘s Android software, came to dominate the market (Kenney and Pon, 2011).

Nokia removed its CEO and hired a former Microsoft executive, Steven Elop. He then

announced plans to abandon the Symbian operating system as well as another joint OS project

with Intel. Nokia has now adopted Microsoft‘s Windows phone software for its next

generation of smartphones.

The insight here is that platform leaders, like any market leader, must think broadly

about potential competitors from adjacent markets as well as manage the evolution of their

technology, business models, ecosystem partnerships, and marketing capabilities, no matter

how successful they may be. Google has always focused on search, but computing has been

moving beyond the desktop for years and even beyond the Internet – to multiple devices,

especially mobile phones, as well as applications and content that reside within both open

(such as the Internet) and closed (such as Facebook) networks. Google has been evolving

successfully while continuing to challenge the modus operandi of the computer industry –

proprietary technology, such as from Microsoft and Apple. Its software is both free (no

license fees) and open (there is access to the source code and developers can modify some

parts of the software). It is hard for companies that charge for their technology and do not

have large advertising income or other sources of revenue to beat Google‘s Android platform

strategy. Platform leaders must be prepared to supplement or even discard their platforms, as

IBM has done, if that is what survival requires. If they fail to develop new technology

internally or find suitable acquisitions, then they may well find themselves adopting the

platform technology of a competitor, as Nokia has recently done with Microsoft Windows.

Microsoft versus Apple

Steve Ballmer, CEO of Microsoft since Bill Gates handed over the reins in 2000, has

sometimes been criticized for not moving the company much beyond the PC platform.

Indeed, in 2012, Windows desktop and server as well as the Office suite still accounted for

24

nearly 80 percent of Microsoft‘s revenues and almost all its profits. Microsoft was under

particular pressure because its share price and market value have been stagnant or declining

since the end of the Internet boom (though this was also true of Intel, Cisco, Nokia, and a host

of other high-tech firms). By contrast, despite the small (but rising) global market share of

the Macintosh personal computer, and despite its near bankruptcy only a few years ago, Apple

has been growing sales at 50 or more annually in recent years and surpassed Microsoft in

market value back in 2010. Apple was growing so fast because, unlike Microsoft, it evolved

beyond the slow-growing PC business and became a major player in newer, more rapidly

growing markets – smartphones, tablets, digital content, and software product distribution.

To be fair, Microsoft remains extremely profitable with PC software products, which

have a marginal cost approaching zero and generally much higher profit margins than tangible

products (Cusumano, 2004). It has also survived disruptive technological transitions and

daunting business-model challenges (character-based to graphical computing, the Internet,

Software as a Service and cloud computing, mobile computing, and social networking) as

well as survived global antitrust scrutiny and major violations (for example, with Netscape

and Internet browsers). Billions of dollars in losses from MSN and Bing over some 15 years

have prepared Microsoft for the online world of ―cloud computing‖ funded by advertising

revenue, even though this threatens its traditional packaged software business. In addition,

Microsoft has recently learned how to break up Windows into smaller, more manageable

modules, which should help it compete better and may also facilitate the delivery of new

Internet-based services. At the same time, the Windows Azure cloud offering and SaaS

versions of major products have had good receptions in the marketplace. Microsoft‘s decision

in 2011 to buy the Internet telephony service Skype also seems part of an attempt to move

beyond the PC and get access to new customers. Other moves include Microsoft‘s alliance

with Nokia in smartphone software and an earlier alliance with RIM to take over the search

business on the Blackberry smartphones.

Conclusions

This paper has discussed some of the major differences between internal and external

platforms and how these can impact product innovation. Both kinds of platforms should be

designed and managed strategically to accomplish the goals and further the competitive

advantage of the platform owner. Internal platforms allow their owners to achieve economic

gains by re-using or re-deploying assets across families of products developed by either the

25

firm or its close suppliers. By contrast, industry platforms allow firms to manage a division

of innovative labor that originates beyond the confines of the firm or its supply-chain.

Industry platforms can facilitate the generation of a potentially very large number of

complementary innovations by tapping into the innovative capabilities of an a priori

unconstrained set of external actors, and provide the technological foundation at the heart of

innovative business ecosystems. As the skills to innovate in technologies (such as ICT) have

become globally distributed, the concept of industry platforms provides a useful template for

the management of exploration of possible avenues for collective value creation structured

along technological trajectories. Importantly, this is an inherently dynamic process. As our

examples indicate, a critical issue for managers is to learn to manage the evolution of their

industry platforms and accompanying ecosystems and make interrelated technological and

business decisions. For example, ecosystem governance should include reinforcing the

business models of members, which is essential to sustain their incentives to invest and

produce complementary innovations.

The examples of Intel and other companies suggest there are particular practices that

effective platform leaders follow (Table 2). Platform leaders who aim to tap into the

innovative capabilities of an external ecosystem need to develop a vision for their platform

and promote this among potentially key players in the present and the future. They need to

build a sufficiently open or modular architecture to facilitate third-party innovation. They

need to build a vibrant coalition around their platform and carefully manage ecosystem

relationships that are mutually beneficial for participants. They need to continue evolving the

platform and the ecosystem, as well as associated business models, to remain competitive as

challengers emerge and as markets and technologies change. Overall, the effective practice of

platform leadership entails a set of internal processes that enable managers to make

technological decisions on the one hand and strategic business decisions on the other, in a

coherent manner – even if the decisions must take place in different parts of the organization.

This imperative for coherence creates challenges not only for practitioners, as internal

divisions of labour lead to organizational silos, but also for scholars – who need to look across

their own academic silos. For these and other reasons, the phenomenon of industry platforms

offers a rich research opportunity to cross-fertilize several disciplines. In particular, we see

three sets of platform-related research questions that should help advance our understanding

of innovation strategy, organizational behavior and networks, and management of

technological change.

26

Table 2: Effective Practices for Platform Leadership

1. Develop a vision of how a product, technology or service could become an essential part of a

larger business ecosystem

a. Identify or design an element with platform potential (that is, performing an essential

function, and easy for others to connect to).

b. Identify third-party firms that could become complementors to your platform (think

broadly, possibly in different markets and for different uses)

2. Build the right technical architecture and ‗connectors‘

a. Adopt a modular technical architecture, and in particular add connectors or interfaces

so that other companies can build on the platform

b. Share the intellectual property of these connectors to reduce complementors‘ costs to

connect to the platform. This should incentivize and facilitate complementary

innovation.

3. Build a coalition around the platform: Share the vision and rally complementors into co-creating

a vibrant ecosystem together

a. Articulate a set of mutually enhancing business models for different actors in the

ecosystem

b. Evangelize the merits and potentialities of the technical architecture

c. Share risks with complementors

d. Work (and keep working) on firm‘s legitimacy within the ecosystem. Gradually build

up one‘s reputation as a neutral industry broker

e. Work to develop a collective identity for ecosystem members

4. Evolve the platform while maintaining a central position and improving the ecosystem‘s

vibrancy

a. Keep innovating on the core, ensuring that it continues to provide an essential (and

difficult to replace) function to the overall system, making it worthwhile for others to

keep connecting to your platform

b. Make long-term investments in industry coordination activities, whose fruits will

create value for the whole ecosystem.

First, we still do not understand very well how industry platforms emerge. The economics

literature has so far not tackled this question, as researchers tend to assume that the platform

already exists (as well as its associated markets on each ―side‖ of the platform). The literature

on technological change and competitive dynamics, dominant designs, and on organizational

processes, could usefully address the question of platform emergence and ecosystem creation

as well (see, for example, Suarez and Utterback, 1995; Murmann and Frenken, 2006; Adner

and Kapoor, 2010). The difficulty to follow the emergence of platforms may be compounded

by the inherent methodological difficulty involved when attempting to follow the emergence

of an unknown entity, when one cannot know ex-ante who the actors involved in the

emergence process will be. Attempting to address this issue, empirical studies such as Le

Masson et al. (2009) whose focus is on collective design processes for developing industry

platforms, open up useful theoretical and methodological avenues by utilizing design theory

27

methodologies that allow to follow objects as they emerge. The classification of platforms

offered in this paper may indicate that, under certain conditions, there could be an evolution

from internal platforms to external platforms, but this hypothesis would need to be developed

and tested.

A related important area of further research is that of the emergence and evolution of

business ecosystems. The networks approach from the organizational literature (see Brass et

al, 2004 for a review), by bringing its insights on network dynamics and field evolution

(Powell et al, 2005) and strategic networks (Gulati et al., 2000; Lorenzoni and Liparinni,

1999), is well-positioned to make significant contributions in this area. In particular, recent

work by Nambisan and Sawhney (2011), building on Dhanaraj and Parkhe (2006), develops

explicitly the link between platform leadership and orchestration processes in network-centric

innovation. The new institutional literature rooted in sociology offer concepts such as

legitimacy, collective identity, and institutional work, which can be useful to determine

whether and how platform leaders can successfully establish themselves as trustworthy

brokers.

Third, our understanding of the impact of platforms on innovation and competition still

needs to be refined. In the literatures we have reviewed (economics, innovation, operations,

strategy), technological platforms are associated with a positive impact on innovation. The

positive effect stems from the fact that, by offering unified and easy ways to connect to

common components and foundational technologies, platform leaders help reduce the cost of

entry in complementary markets, and provide demand for complements, often fuelled by

network effects. Platforms therefore offer a setting where it is in the interest of private firms

to elicit and encourage innovation by others. However, concern over the dominant positions

that platform leaders such as IBM, Microsoft, Google, or Apple can achieve has raised

awareness that platforms may have a potentially negative effect on competition and possibly

on innovation, especially non-incremental innovation. We suggest that as scholars we need to

further refine our argument about platforms and innovation.

For example, further theory development could examine the role of interfaces and

architecture, and how platform design might focus the attention of innovators onto specific

trajectories of technological change (Dosi, 1982). These might take the form of what Nathan

Rosenberg (1969) called ―inducement mechanisms and focusing devices.‖ It is possible that

platform leaders tend to successfully stimulate a certain kind of externally-developed

innovation (that would complement the platform), while aiming to discourage another kind of

28

innovation (that would diminish the appeal or the perceived value of the platform). This type

of research would highlight the potential trade-offs between innovation on modules or

discrete products versus innovation on systems.

29

APPENDIX TABLE A. INTEL COORDINATION INITIATIVES IN 1997-1998

IAL Initiative

Mission Key programs Diffusion

Networked

Multimedia

Make multimedia pervasive on the Net

and provide the best experience on the

high-performance Connected PC

Scalable, MMX Technology

optimized media engines; Efficient

media network transports and

services: tools and services

H.323 stack in Microsoft’s Internet Explorer 4.0; supported by

firewall vendors; but also products Indeo Video 5.0; and also

building blocks WDE ships as part of Microsoft’s Internet

Explorer 4.0; RSVP and RTP ship in Windows 98 and Windows

NT 5.0.

Manageability Enable platform and network

infrastructure to make Intel

Architecture systems the most easily

manageable and the best managed

Industry specifications and industry

groups; software development kits

Specifications, Software Development Kits; but also products:

Intel NIC 12 and LanDesk Software products; Also, diffused

through Microsoft, as ingredients: Wake-on-LAN13 and Wake-on-

Ring NICs and Modems in NT, Win 98.

Big Pipes Increase content delivery capacity of

the connected PC to allow home and

business customers to easily receive

new broadband digital content

Common software architecture for

PC broadband transport; reference

designs

Networking connectivity products.

Security Make PC interaction trustworthy for

communications, commerce, and

content

Industry specifications and industry

groups, drives the CDSA

standardization effort; software

development kits

Open specifications and industry groups, CDSA R2.0, in

OpenGroup; OpenGroup standard, IBM licensed. Products also:

IBM and Intel shipping product based on CDSA standard. And

also, licenses to Zoran: DVD copy protection

Anywhere-in-

the-Home

Unleash the potential of home PCs with

new uses that deliver computing power

and content when, where, and how it’s

is needed in the home.

PC-friendly protocols and

standards; concepts demos and

prototypes.

Standards, Control-InfraRed – with Hewlett Packard, Microsoft,

and Sharp; Home- Radio-Frequency – with Compaq, IBM, and

HP; and Home Device Control.

Advance-the-

Platform

Establish the media, communications,

and interconnect building blocks for the

next generation high performance Intel

Architecture platforms

Interconnects USB, AGP, 1394 A/B;

future processor optimizations,

visual PC 2000

AGP drivers, USB compliance workshops, PC-friendly 1394A

specifications. No commercialized products. Ingredients in

Microsoft’s products: Real-time services in WDM in Windows 98

and Windows NT 5.0.

Source: Gawer and Henderson (2007)

12 NIC = Network Interface Card, an expansion board (i.e., a printed circuit board) that can be inserted into a computer so the computer can be connected to a network. Most NICs are designed for a

particular type of network, protocol, and media, although some can serve multiple networks. (Source: www.webopedia.com) 13 LAN= Local Area Network. A computer network that spans a relatively small area.

30

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